let me see if I get this right...

I am trying to decide to take, if offered, a job with a big UK company.  I would be a full UK company employee so I guess they'd take care of tax withholding etc.  I understand, apparently, that I will pay normal and customary taxes on my UK income in pounds.  Then I will be expected to pay US tax on everything I make over the exchange rate equivalent of $80K.  But, I do understand from a lawyer millionaire friend of mine that I can write off all my UK taxes paid on my US  return and he suggests that I would end up paying very little US taxes, then, if any.  Does that sound about right?  I intend to stay at least 3 years, maybe forever.

Second q:  I am very concerned about salary equivalencies.  It seems like rents/property values are about the same in the areas I might live (suburban London and Edinburgh-though Edinburgh a little cheaper) as I am experiencing here in Washington, DC.  But it appears cars are WAY more expensive as are some other things. Therefore, any advice on, if I make $107K here, what I should use as a guide over there in pounds? And I'd like to make more the equivalent of $125-150K  They have talked 90K pounds but I am not sure that is enough given higher costs.

Thanks
John

If/when you moved back to the US you can claim back UK tax paid in that year but I don't think you can claim back all tax paid over the years you were here.

Sorry, but if you could claim the tax back each year you moved we'd all be moving to the US every other year!  Sorry, but this is an urban myth.

You may or may not owe US taxes.  It depends on whether you claim treaty exemption on UK employer pension contributions, levels of other income, what the IRS decide to do about removing most of the foreign housing exclusion (we are expecting an announcement soon on that).

You can't write off all of your UK taxes, only the UK tax that is not excluded under the foreign earned income and foreign housing exclusions.  As long as UK rates are higher than US most folks don't owe US taxes, so the answer given by your friend is kinda correct though.

Other issues:
1. Saying you may stay in the UK forever is radical and ruinous for claiming non-UK domicile.
2. If the going rate for your job is £90,000 plus benefits then that is what you'll get paid. This is a very good wage for the UK.
3. Some things are cheaper, others less so.  Far fewer of us have cars in the UK than the US; housing costs vary in both DC and parts of the UK depending on the neighbourhood and whether you are an experienced purchaser, I would have thought they were similar but it is up to your negotiating skills with your employer to see if they will pay towards this.

Thanks a lot.
john

I'd request accountancy services if you take the job, then you'll be in good hands. The laws are tricky and can depend upon the number of days that you are in and out of the UK. The tax rates in the 2 countries are essentially the same (if you look at UK tax and NI tax compared to US fed, state, local, etc). However, the UK no longer offers mortgage interest and property tax deductions and other things the IRS offers. Therefore, our taxes are much higher in the UK than they were in the US. You'll want to check this carefully (I posted the rates for both countries elsewhere on this site or you can do a search for them).

You are correct in that the first 80K is excluded IF you meet the requirements (physical presence test). You'll want to watch this if you transfer mid-year/end of year.

The inland rev system works on an April-March fiscal year, not a Jan-Dec schedule.

You'll also want to check into the pension schemes: some or many cannot be touched until age 65, so if you only plan to be over for a few years then the penalties may not be worth it. You'd want some IRAs or such instead--again up to your advisors and your preference.

We are preparing now to leave the UK and return to the US and we can file to receive some tax back, but that is our personal allowance tax, etc. that we get back for leaving mid-tax year. In the UK we do not file returns--tax rates are standard and your employer will manage this (it also means there isn't as much room for deductions).

Personally I feel that London rents are on par with NY and SanFra--my friend in SF pays the same we do but her place is twice the size of ours. I've no idea how Washington compares. It all depends where you want to be.

90k would be a good wage, but as the others say it all depends on your industry. Some positions come with a car allowance and some do not (there can be tax implications). The avg UK wage is 25K or so. Think of most things as costing in pounds what they cost in dollars: a coffee is 3 pounds instead of 3 dollars, etc. 90K is doable, but there's no easy way to say how it compares to your lifestyle now. Going out to dinner is much more expensive as are clothes (I think but some groceries are less). Cars are much more expensive (so is car tax, petrol) but if you are in London then you'll take public transport or walk to work, in all probability (parking is a nightmare--it's always pay and always a challenge).

Look at www.findaproperty.com to get some London rent prices.

Whatever you do, approach this as a 1 or 2 year transfer and not a forever thing...it's easier to grasp the tax info and such one step at a time.

Good luck!

There are tax breaks for transfers of two years or less.  Be sure your contract specifies two years or less.  These tax breaks require (a) you open a bank account offshore and (b) you do not own your home in the UK.  All banks in the UK have onshore and offshore branches; it's all seamless.  Your offshore ATM card will have the same "look and feel" as an onshore one (no additional withdrawal charges) and your direct debits and cheques will all be fully integrated with the UK banking system.

There are tons of other requirements too, but you can go over these with your accountant; chances are you will meet the other requirements easily.

I don't think Lizzit is right on UK tax, but then again I don't think she works in that field.  There is no need AT ALL to have an offshore bank account for a less than 2 year assignment.  There could be for a less than 3 year assignment.  This might just be a typo, but overall Jennifer's message is right.  You need a proper dual UK and US tax qualified adviser to speak on both subjects.

All UK pensions can now be drawn at age 55 (except for the State pension), but you may find some old company plans still have later retirement ages.

Because UK pension contributions can be deducted in the US and US contributions in the UK the whole pension thing is tricky and wants proper tax advice.

guya, right, there is resident and ordinarily resident, which both have tax implications in the UK.  I found an earlier post where the process is of determining if 2 or 3 years is laid out:

There are two considerations, there is resident and ordinarily resident.

This chart at HRMC explains if he can be considered resident or not...
http://www.hmrc.gov.uk/manuals/rgmanual/html/objects/char25.gif

This chart at HRMC explains if he can also be considered or not ordinarily resident...
http://www.hmrc.gov.uk/manuals/rgmanual/html/objects/CHAR26A.GIF

It has much more to do with your intentions then if you have a bank account or not.  Also, if you could in theory get nailed if you our intention doesn't hold up if Inland Revenue decided to come looking for their money.

Kit - it is dangerous to generalise, anyone coming to the UK where money/tax are relevant should take advice; preferably before arrival, as against relying what I or anyone may type in an open forum.

There are lots and lots of complications, and indeed plenty of potential deductions in the UK, one of which factors is currently intention.  Following recent UK case law we may indeed see far greater focus on intention at audit time

Guya, while I am not personally licenced to do UK tax work, it is the lifeblood of my business to know the basics of UK taxation for Americans Abroad.  I provide UK tax preparation service to my clients with my UK colleagues who work with me.  I'd be a pretty lame US tax accountant if I didn't take both sides of the equation into consideration.

The tax breaks for being here temporarily under Resident but Not Ordinarily Resident (RNOR) work on a Remittance basis. 

From the HMRC website:
If you’re resident but not ordinarily resident:
    * for work you do in the UK, you’ll pay tax on all your earnings
    * for work you do overseas, you’ll only pay tax on any earnings you bring into the UK

So, if your bank account is in the UK, and you then deposit your entire paycheck into it, you've brought the money into the UK.  You've destroyed your nice little tax break for having overseas workdays.  You must deposit the money offshore for the RNOR tax break for overseas workdays to work.  And you have to not spend some of that money here.  If you spend it all here, you've brought the money into the UK.  The easy way to avoid bringing it all in is to use it a lot while you're out of the country on those non-UK workdays and non-UK holidays.  Hence, my recommendation that they open their account offshore rather than onshore.

There's a second benefit as well, the tax on the bank account interest.  It's taxed in the UK if the bank is int he UK. It won't be taxed in the UK if your bank account is offshore (and you remit to the UK an amount less than your total net payroll).

I stand by my recommendation that new arrivals on a short-term working basis open an offshore account.

I am glad that Lizzit and I both agree that if an individual is resident but not ordinarily resident in the UK then - in some circumstances - a UK tax reduction can be obtained by holding correctly structured non-UK bank accounts.

There are of course several other tax issues that any individual would consider in choosing an appropriate location in which to hold this offshore bank account out of the many "likely candidates" of offshore location.

The original question was however about someone staying for more than 3 years, so the main benefits and issues to be resolved in this case are about longer-term structuring of non-UK bank and other accounts.

As both intention, evidence of intention and bank account structuring are recurring audit questions - along with needing to be disclosed on annual tax UK return reporting nowadays following recent changes in UK law - we also both agree that coordinated US and UK advice is sensible.

Poor little JKF011!

I see now where Guya and I differed - I had an assumption that I didn't state:

Thant JKF011 may not actually intend to stay for 3+ years as originally posted.

That's because JKF011 hasn't had his/her counseling session with his/her tax advisor yet.  Many people say they want to move here forever, but upon discovering the tax consequences of aquiring a UK-domicile, change their minds.  The tax advisor will explain the consequences of all the possible answers, and JKF011 will then be able to consider what his/her intentions truely are.  Ideally this is before the move, so that the intentions never change from date of arrival.

I'm glad to see Guya and I agree on everything. 

P.S. Nice to see you on Tax Almanac, Guya.